This High-Flying Marijuana Stock Deserves a Serious Look
Compared to the well-known marijuana companies, Cresco Labs, Inc. (OTCMKTS:CRLBF, CNSX:CL) is a relatively new name to stock market investors. The company’s shares started trading on the Canadian Securities Exchange on December 3, 2018.
Yet despite only having been on the market for less than five months, Cresco Labs stock has already delivered astronomical returns.
On its first day of trading, Cresco Labs stock closed at CA$6.55 per share. Today, the stock trades at roughly CA$16.17 per share, marking a staggering return of 147%.
American investors have gotten a piece of the action too. On March 6, Cresco Labs shares began trading over the counter in the United States.
While that means U.S. investors didn’t get all of the action since December, they likely have made some serious returns. Since Cresco Labs started trading over the counter in the U.S., CRLBF stock has surged 37%.
The big question now, of course, is whether the rally will continue.
Well, based on the company’s fundamentals, the answer could be “yes.”
Cresco Labs, Inc.
Headquartered in Chicago, Cresco Labs, Inc. is a vertically integrated cannabis operator. In other words, the company is responsible for not just one stage of the production process. Instead, Cresco Labs does cultivation, manufacturing, branding, wholesale distribution, and retail.
Right now, one of the biggest catalysts for Cresco Labs stock is the company’s expanding presence in the pot industry.
Earlier this month, Cresco Labs made headlines by announcing a definitive agreement to acquire Origin House (OTCMKTS:ORHOF, CNSX:OH), a cannabis product and brand company with a strong presence in California, the largest marijuana market in the U.S. (Source: “Cresco Labs to Acquire Origin House in Largest-Ever Public Company Acquisition in the U.S. Cannabis Sector,” Cresco Labs, Inc., April 1, 2019.)
Under the agreement, Origin House investors will receive 0.8428 Cresco Labs shares for each Origin House share, representing a total consideration of around CA$1.1 billion. Once the deal goes through, it will mark the largest-ever public company acquisition in the U.S. marijuana industry.
Worth noting is that the combined company would be the second-largest vertically integrated multi-state cannabis operator by market capitalization.
After the transaction, Cresco Labs will have 23 production facilities totaling 1.8 million square feet. It will offer more than 56 different brands and over 500 products in production. The company also has 56 retail licenses and 22 operating locations. The combined company’s products will be sold in more than 725 dispensaries. (Source: “Building America’s Largest Cannabis Company,” Cresco Labs, Inc., last accessed April 18, 2019.)
“With the addition of Origin House and its vast distribution network in California, we will have access to incredibly valuable real-time market data and insight into consumer buying patterns that will inform our product development strategies and reinforce our brand strength,” said Cresco Labs President and Co-founder Joe Caltabiano. (Source: “Cresco Labs to Acquire Origin House in Largest-Ever Public Company Acquisition in the U.S. Cannabis Sector,” Cresco Labs, Inc., op cit.)
Mind you, this is not the first time Cresco Labs has boosted its competitiveness with an acquisition.
For instance, last month, the company announced that it had signed a letter of agreement to acquire VidaCann Ltd. for around $120.0 million in cash and stock. (Source: “Cresco Labs Enters Florida – Will Have Access to 65% of the Total Addressable U.S. Cannabis Market,” Cresco Labs, Inc., March 18, 2019.)
VidaCann is one of the largest vertically integrated providers of medical cannabis in Florida. It currently operates eight dispensaries and plans to have a total of 20 by the end of 2019. By acquiring VidaCann, Cresco Labs can gain a substantial presence in the Florida cannabis market quickly.
The neat part is, even before these acquisition announcements, Cresco Labs was already growing at a rapid pace.
Delivering Growing Financials
According to its most recent earnings report, Cresco Labs generated CA$12.2 million of revenue in the third quarter of 2018. This marked a 51% increase from the second quarter and a whopping 335% increase year-over-year. (Source: “Cresco Labs Announces Profitable Third Quarter 2018 Financial Results with Revenue Growth of 335% Year-over-Year and 51% Quarter-over-Quarter,” Cresco Labs, Inc., December 10, 2018.)
For the quarter, the company earned a net income of CA$3.9 million. This is particularly impressive, considering that in the year-ago period, Cresco Labs had a net loss of CA$0.2 million.
CRLBF Stock Chart
Chart courtesy of StockCharts.com
What we have here is a fast-growing cannabis company with an ambitious plan to expand its presence. If its plan works out, Cresco Labs might be able to deliver even higher growth rates and CRLBF stock could see further upside.